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Chapter 8 Internet and Pricing Issues: Relationship
of Prices Charged by Fixed Price Vendors in Cyberspace and Those in Bricks
and and Mortar Stores The selling of goods and services over the Internet is increasingly dominated by firms that also retail in bricks and mortar (B&M) stores. How are prices set on the Internet and in the B&M stores, and what is their relation? As an organizing framework, we use the literature on price discrimination, which analyzes the practice of charging different prices for the same, or very similar, goods. We start with a setup where only a share of the population has access to Internet. We analyze a number of mechanisms that affect optimal prices on the Internet and in B&M stores, for instance, different consumer characteristics, different strengths of competition in the two channels, and the decision to price discriminate when there is competition. We continue with applications of price discrimination based on self-selection by consumers and price discrimination when the retailer has accurate information about a particular consumer’s willingness to pay. We end with a discussion of experimental evidence on fairness concerns and discuss their implications for pricing strategies. |